What Is the Inflation
Adjusted Price of Corn?

Over a 12 year period, from 2000 to 2012, corn
prices exploded from a low of just over $75
per ton to a high of almost $333 by August of 2012.

In July of 2000 corn was making lows of
around $75/ metric ton with highs for the year up around
$95/ton. Obviously , corn is volatile if it can move
30% in a few months. This can be due to weather conditions
causing crop failures or other external factors.

On the other hand weather alone doesn't account
for the quadrupling of corn prices by August of 2012
when corn was selling for over $332.95 a ton. There
was speculation that the dramatic increase in the
price of corn was the result of ethanol becoming
part of the gasoline mix which drove up demand in
excess of supply. It obviously took several years
for farmers to ramp up production but beginning in
2013 prices began to fall again bringing prices back
down to 2006 levels.

But how does that price compare to historical
corn prices?

As we always say, the only way to see the true picture is
to look at the price in "inflation adjusted" terms.

In the chart below, the black line represents the
nominal (or actual price) per ton of corn since 1981.
As you can see the nominal price stayed between $75
and $150 up until 2006. The only exception was a couple
of months during 1996 when prices spiked up to $200.
From 2006 onward however, prices began climbing
and even with the recent fall still haven't gone below $150 a ton. One of the reasons
given for this new "floor" under the price of corn is the
increased demand from ethanol producers who use it to
produce a gasoline additive / alternative.

Click Chart for larger Image

However, when you adjust corn prices for
inflation
you find that the current decline in the price of corn
is actually bringing the price lower than the
average inflation adjusted price from from 1981 to
the present. So even though ethanol is being added
to gas the impact on corn prices wasn't permanent.
Corn prices still haven't reached the lows
attained from 2000 through 2006 when the inflation
adjusted price ranged between $100 and $150 per
metric ton but at $166.31 it is certainly getting
close.

It is not surprising to see corn and other commodity
prices falling along with oil. All commodities
rely on oil for production and transportation to some
extent (unless you are using oxen to plow your field).

So you would expect a positive feedback relationship
for the price of oil. But there are other reasons
too. Both oil and corn have become somewhat interchangeable
with the advent of corn based ethanol.

But an even more important reason
is that inflation is primarily a monetary event.
It is caused by an increase in the money supply and
as time goes on it spreads evenly over all commodities.
Initially, corn or oil or pork bellies may rise
quicker but as time goes on it levels out somewhat like
water flowing to all the various commodities.